Investing in property

An investment buy-to-let mortgage is when a person buys property as an investment, rather than a place to live. This type of mortgage is more likely to be interest-only and will require a higher deposit, at least 20%. There is also a requirement for the rent to cover the mortgage payment and other fees associated with the property.

A consumer buy-to-let mortgage is when a person becomes an ‘accidental landlord’. This is due to circumstances, rather than intentional investment. This can happen in several situations: inheriting a property, moving abroad for work and leaving the house to be rented out, intending to sell but it is difficult to sell the property. These mortgages are regulated mortgages (unlike investment buy-to-let mortgages) and fall under the same regulations as residential mortgages. If you think you fall in this category, give us a call and we can discuss your requirements.

The minimum deposit for buy-to-let property is 20%. However, we would recommend a 25% deposit to achieve a better interest rate.

The rental cover ratio shows how much the rental income covers the mortgage payments. A rental cover ratio of 1.5 or 150% would cover the mortgage payment by 150%. The minimum rental income calculation is based on the annual stress rate (typically 5.5%) and depends on your taxpayer status. We have developed a simple Rental Income Calculator to give you indicative minimum rental income required to cover your mortgage payment.

Yes, you can purchase an investment property through a limited company, which is called a Special Purpose Vehicle. This limited company needs to be registered with Companies House, have at least one director and be a non-trading company. This means the company has no other purpose just to own the property and rent it out for profit. There are many tax benefits to owning a buy to let property through a limited company. You can read more in our blog post here.

An SPV, or a Special Purpose Vehicle, is a way of investing in property through a limited company. The company owns the properties and pays dividends to directors. The biggest advantage of holding properties in SPV is tax treatment. This allows a company to offset mortgage payments against income tax. It is also allowed to buy and sell shares in an SPV to raise capital, rather than sell the property itself. Find out more in our blog post here.

An HMO, or Houses in Multiple Occupation is a property rented to at least 3 tenants that share common areas, like kitchen and bathroom. A large HMO is when at least 5 tenants occupy a property. Many councils introduced HMO licences, so please check with your council about the rules and obligations as a landlord.

We would strongly recommend a landlord’s home insurance. The landlord insurance not only covers the walls, roof, permanent fixtures and fittings but also can cover the loss of rent in case of an insured event, change of locks if keys are lost or stolen or malicious damage caused by the tenants to the buildings.